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FRM Part II · FRM Exam Part II · Liquidity Transfer Pricing: A Guide to Better Practice

Which practice would most undermine the credibility of an LTP framework in the eyes of business units?

Opaque pricing that lacks a clear policy and is frequently overridden without documentation most undermines an LTP framework. Better practice requires transparent, governed, consistently applied methodology, regular curve updates and independent review, so business units trust the internal prices and respond to them appropriately.

  1. ATransfer prices that are opaque, not governed by a clear policy, and frequently overridden by Treasury without documentationCorrect
  2. BPublishing the methodology and update frequency to all units
  3. CUpdating the curve regularly to reflect market funding costs
  4. DHaving an independent committee review the framework periodically

Explanation

Credibility depends on transparency, consistent governance and defensible methodology. Opaque, ad hoc overrides create distrust and distort incentives. Publishing methodology, regular updates and independent review are all recognized better practices.

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